Monday, 31 October 2011

Arbitration


The public understand workplace relations partly by observing strikes and the level of disruption caused by unions.

This is understandable but reducing strikes is just the tip of the policy iceberg.

Some still think that the waterfront was one of the best things about the Howard government. And it was but actually, the even bigger change made by the Howard government was the change to the legislation in 1996 because that made the waterfront dispute possible and the changes improved the system for employees and employers in businesses and industries all round Australia. Under the Howard government the number of disputes fell to record lows, employees enjoyed increases in real wages, unemployment dropped and more people joined the workforce.

However one dispute, whether Qantas or the waterfront, can be very important by demonstrating how recent legislation like the Fair Work Act can impact on behaviour more generally in Australian workplaces.

On Saturday night, in a special hearing before Fair Work Australia, Qantas acquiesced in termination of the Qantas dispute apparently on the grounds that arbitration is a better option. Qantas CEO Alan Joyce has been saying that a mere suspension of industrial action by both sides would advantage the union. Qantas wanted an end to the cloud of uncertainty discouraging customers from booking flights. As Fair Work Australia considered this issue, and as I wrote this column, there was no doubt that the dispute will embolden militant unions to take further industrial action. That has already happened against BHP, and recently Customs and Toyota and others have been under threat. I expect the unions could soon be ramping up their attack on the resources sector.

Then, early this morning Fair Work Australia ordered an end to all industrial action by both the airline and the unions. Qantas will be back in the air and its workers back on the ground as early as this afternoon.

As soon as I heard premiers Baillieu and O'Farrell calling for government intervention, I had the awful thought that Australia could soon be on the rocky road back to arbitration. Later that Saturday morning, I noted that Professor Judith Sloan had blogged a similar view. I shuddered when I realised that senior Liberals including Tony Abbott were publicly encouraging PM Gillard to intervene and thus take the first steps to compulsory arbitration. I had not realised how quickly matters would develop and by the afternoon, Qantas announced the lock out. By Sunday morning Tony Abbott was saying that the Government should use all of the powers under the Fair Work Act. The Act includes a power to arbitrate. The Coalition should be supporting Qantas but instead Abbott says he does not take sides. Hawke supported Ansett and Howard supported Patricks. Reagan opposed the air traffic controllers and Maggie Thatcher confronted the coal miners. Abbott said of the dispute that "it is not a policy problem, it is a competency problem". These comments are obviously inaccurate. Of course PM Gillard is incompetent, but Tony only said that because, as everyone knows, the Abbott Coalition no longer has a policy on industrial relations.

Australia has not used compulsory arbitration since the Fraser years and earlier. Until this weekend, compulsory arbitration was part of our economic history. Neither side of politics have supported arbitration since the late 1980s. It represents a system that was largely discredited for having depressed Australian living standards by failing to promote better and more productive workplace relations. It was a system that was supposed to advantage workers with a fair day's pay for a fair day's work. But it did not work and, together with the policy of protection, it became a drag on Australia's success.

The point about compulsory arbitration is that it is premised on the concept that ultimately the responsibility for sorting out how people in a business manage their affairs should be determined by a government agency, Fair Work Australia (FWA) and not the people in the business. The people best able to understand the needs of a business are those working within the business. A governmental third party can never equal or do better than private sector participants. More importantly, only the people within the business can really have the necessary motive to promote the success of the business. Good businesses spend every day trying to improve. It is a dynamic and continuing process. Only within the enterprise will you find the motive to compete with competitors to deliver better goods and services to consumers. That competition includes the competition to have good workplace relations. To my knowledge there is hardly a successful modern economy anywhere that believes that compulsory arbitration is a good idea. Even the communists in China now accept that competition is the way to lift people out of poverty. Free enterprise and capitalism, with all their many faults, reward success achieved through competition to meet the demands of consumers. Of course, modern societies temper this approach by legislating protections for employees and consumers but the engine of our economic society is competition and the freedom to compete.

The reality is that under Labor's legislation, the unions have more power. And Labor is dragging Australia back towards arbitration. There is no question that the reregulation of the workplace has triggered this dispute and, as John Howard said fairly recently, this policy will have to be overturned. Only the Coalition can do that because Labor is hopelessly compromised by the unions. The Coalition should not be saying this dispute is not about policy. This dispute is all about Labor's policy. At a minimum, the Coalition needs to have a policy that includes restrictions on the right to strike to matters pertaining to the employer/employee relationship, strikes should be used only as a last resort, the JJ Richards case should be overturned, the bargaining rules should be tightened, exemptions should be given to small business for unfair dismissal and individual agreements should be reinstated.

I can't say I predicted this dispute but I and others and many people in business have for months been saying there are growing problems with Labor's legislation. The Coalition and the Government need to stop pretending that Gillard's system is OK. It is not and needs to be changed before it does a lot more damage.

Tuesday, 25 October 2011

Submarines


If Stephen Smith wants to replace Prime Minister Julia Gillard he would be in a stronger position if he did a better job in his portfolio.

As he has only been Defence Minister since September 2010, it might be a bit harsh to judge his efforts so far, but he has one very big issue that seems to be dragging.

The main issue for any defence minister is to ensure that Australia has done everything possible to be able to defend itself against direct armed attack. The security of our country is the highest priority of any government. A strong defence force is our most important insurance policy to maintain our security and so there is no acceptable excuse for not paying the premium.

The Minister's job is to ensure we have "the ability to conduct independent military operations in the defence of Australia by way of controlling the air and sea approaches to Australia, and denying an adversary the ability to operate, without disruption, in our immediate neighbourhood".

For that reason, the Government's 2009 Defence White Paper stated that one of its main priorities was "a significant focus on enhancing our maritime capabilities".

And at the centre of that wish list are 12 new submarines to be built in South Australia in Australia's biggest ever defence project. To me, this seems particularly ambitious; especially without looking at the alternatives. The existing six Collins class submarines, ordered by a previous Labor government, have been disappointing from the start. It is not obvious why Labor wants to risk a repeat of that experience. The Navy has struggled to even have enough crew, submarines have been too regularly out of service and in the Minister's own words (ABC TV July 20, 2011),"There are longstanding maintenance and sustainment difficulties with our Collins class submarines". And now he says he can't start on the new project until he knows how long the existing submarines will last.

An interim report is due in about six weeks with the final due March 2012. But I am not sure that isn't a smoke screen. The Minister has not encouraged any informed public debate and tried to keep the Opposition and the public in the dark.

The Australian Strategic Policy Institute has recently been quoted as saying that the wish list for military hardware is already a long way behind schedule.

There are various options to enhance our submarine fleet. One option is to buy off the shelf, but that has been ruled out. The Navy always says our needs are unique so we have to build our own submarines. Certainly, we need boats that can travel long distances quickly and remain, for substantial times, undetected. The Europeans build diesel submarines and some have substantial capabilities. They would be cheaper and maybe more practical and reliable. Even if they could not meet all our requirements, perhaps in stronger collaboration with the US, we could have an even stronger submarine force.

These issues are nowhere properly canvassed by the Government; they want the assembly done in SA and that is that. But the options should be discussed. In addition to the European option, another option is to buy nuclear submarines from the Americans but "the Government has ruled out nuclear propulsion for these submarines".

I presume Labor's reason is purely political. Labor agreed to a new nuclear reactor in Sydney a few years ago for medical and research purposes. But today any mention of the word 'nuclear' is just not possible for a Government in bed with the Greens. But sensible discussion about the defence of Australia is too important to be subject to a Green veto.

Nuclear propulsion instead of diesel does not mean Australian submarines would carry nuclear weapons. Nuclear powered boats can travel further and faster so whilst 12 boats are needed if using diesel propulsion, some lesser number may be more than adequate with nuclear propulsion. All these cost differences need to be examined. Servicing a nuclear reactor would mean that we would have to have an arrangement with the US for maintenance as we do not have substantial nuclear technology in Australia. A joint submarine base with the US in Australia would be good for Australia.

And there is no rational reason for us to be too shy about a nuclear-powered ship when, as the White Paper says, Australia has been relying on the nuclear deterrent for years and, under successive governments, has acknowledged the value to Australia of the protection afforded by extended nuclear deterrence under the US alliance.

Working with the US also fits our national interest to work closely with our principle ally. There is nothing new about Australia working closely with the US; Australia already has extensive arrangements with the US in situations where costs are prohibitive for us to operate alone, eg. space-based assets and some sensitive special technologies.

Of course, if we are to build the submarines ourselves it will end up as an open cheque book and the cost will escalate. In the White Paper, the Government says that all purchases should be subject to the principle "that military-off-the-shelf and commercial-off-the-shelf solutions to Defence's capability requirements will be the benchmark against which a rigorous cost-benefit analysis of the military effects and schedule aspects of all proposals will be undertaken". But this will not apply to the biggest ever defence project where the estimates are anywhere between $36 billion and $70 billion.

From the same people who gave Australia pink batts and school halls, there is every reason to have misgivings about how this project will be developed. If it ends up with cosy union deals, like the desalination plant in Victoria, the cost to the taxpayer could be astronomical and the boats might end up no better than the Collins'.

It would be in everybody's interest, including his own, if Minister Smith was a lot more open about the critical decisions yet to be taken on this project so vital to Australia's long term security.

Wednesday, 19 October 2011

Migration Policy


Chris Bowen should seriously think about quitting the Gillard Ministry. But not out of political spite or disregard for Julia Gillard.

He needs to go because by staying he is killing off his political career, for no good reason. Even before the weekend Cabinet leaks showed he was rolled by the left and PM Gillard, it was obvious that he has a policy of offshore processing that he knows he can't implement; so why go on? What is the point of being a minister if you are disallowed from implementing the policy you have just confirmed?

The only other option is for Gillard to do the right thing and move him to another less controversial portfolio. She owes him for everything he has had to put up with as Labor's policy has crisscrossed the road like a young footballer on the way home from the local pub having won the grand final.

It is ludicrous for a Government to announce that its policy is offshore processing and then say it can't be implemented. This is as much nonsense as its earlier excuses; like the push factors that were later dropped and pull factors substituted. Then we were told Nauru could not be used because Nauru had not signed up to the UN convention. That was Labor's first reason for not using Nauru. Of course the real reason then was that it could not be admitted for 'political' reasons, namely because it was John Howard's policy.

Labor's latest answer, after Nauru signed the convention, is that it won't work now because the circumstances have changed but again, that is only said as an answer to the fact that Nauru worked under the Coalition.

The issue will not go away. After four years in office, this is Labor's legacy, a policy they say they cannot make happen. Blaming the Opposition will only rile the public more.

And by Christmas there will be a lot more boats. The Gillard non-policy is an invitation to come by boat. Her position is that this is undesirable but her only response is to blame the Opposition. This non-policy is not tenable. Governments are elected to govern. If a government can't govern, then it should resign or call an election.

Many of the new arrivals will need financial support from Australian taxpayers. Many will struggle to find a job and have the dignity of work. Australia's unions will never allow them the opportunity to enter the labour market; too many changes would be needed to give the flexibility needed for these people to get a job. In time, these people will have rights to bring in family members and they are likely to also struggle to find work and will also end up on the unemployment benefit.

When Labor was in office under Hawke and Keating, the immigration program was poorly run and we ended up with a lot of unskilled workers who spent years on unemployment benefits. This was not good for them or the economy. The situation was remedied by the Howard government reforms and opposed by Labor.

A poorly run immigration program undermines community support for more migrants.

Australia has a once in a lifetime chance to make the most of our resource sector but we need qualified people for that purpose. Instead Labor's disastrous handling of the boat people issue has undermined public support for a strong migration program at exactly the wrong time. The repercussions are already tangible. The latest figures show that population growth has slowed to 1.4 per cent and the Age reported (30/9/2011) "KPMG demographer Bernard Salt yesterday attributed the slump in net overseas migration to Julia Gillard's move to distance herself from former prime minister Kevin Rudd's 'big Australia' policy". A policy of encouraging migration to Australia has been bipartisan mainstream policy for many years.

Under PM Gillard that policy position is being weakened boat by boat.

If Labor's stated policy is offshore processing then Gillard needs to pursue that policy. She needs to announce how she intends to implement her policy. The weekend leaks suggest that Bowen acknowledged that reality and wanted to put Tony Abbott's position to the test. Bowen's test must have been to trial Nauru so that if it did not work, his Malaysia solution could be resurrected.

Instead, the PM now says the situation is not her responsibility.

The term "responsibility" is much used by politicians. Both sides attach much credibility to the term, safe in the knowledge that it is "ill-defined" as described in Australia's Commonwealth Parliament by Reid and Forrest. This authoritative work was commissioned for the centenary of Federation. The authors also make the point that "Thus the extent to which the government is held 'responsible' will depend upon the demands of the elected Houses of Parliament and their constituent members; at the same time the actions of both the legislature and executive will be strongly influenced by the challenge of periodic elections and the attitudes of the electors".

The attitude of electors on both the unpopular carbon tax and border protection policy suggests that an election soon would resolve widespread community angst on both policies and allow Australia the chance to avoid the costly and divisive wrangling that seems set to plague Australia for some years ahead. It seems that Chris Bowen's presentation to the Cabinet was realistic and focussed on advancing the Government's policy. He can now do no more, so he should move one way or another. If the PM can't follow his lead, she should call an election or resign.

Friday, 14 October 2011

Speech to Victorian IR Society


Notes for an Address to the Industrial Relations Society of Victoria 14 October 2011  
Check against delivery

Thank you for the invitation to be with you.

Having read Steve Knott’s comments on what I can say, I suppose I will have to be careful. You never know what might arise from such a provision. It was belief in freedom of speech that gave the H R Nicholls Society its name. So I am ready to be a martyr and sit in a cell with Steve Knott and say that Labor has been appointing a ‘tribe’ of union types to the FWA. They undermine confidence in the system. The one positive from their behaviour is that it demonstrates that the system needs an overhaul. In fact, Steve’s remarks are very strong and I call on the Minister to answer, point by point, the criticism with something more than rhetoric.

In my view, there are real questions to be asked about the institution as a whole. Members of the HSU have every reason to think that they have been let down by not just their union but the people who were supposed to be regulating the conduct of unions.

After Andrew Bolt’s experience, Paul Kelly is right to say that the issue of freedom of speech should be an election issue. Section 674 provides for a criminal offence for conduct that “disturbs” an FWA Member in the “performance of functions, or the exercise of powers”. I have not researched the background to this provision or its similar earlier forms but, given the Bolt case, I hope one of the legal firms here today might put out a paper on how the provision might operate. This would be useful for those of us who often talk about IR.

I am here because the Opposition is not.   I am here for only one reason. I am disappointed that a much better system for managing the way that Australians work together has been thrown away by Kevin Rudd and Julia Gillard. We are already just starting to see the adverse consequences of Labor’s gift to their union masters in return for their electoral support in 2007 and since.

You may think that is a partisan comment. But it is not. People like Mark Latham, Michael Costa and others have both commented on how Labor since 2007 has trashed the economic policy stance of Hawke and Keating. But the implications for Labor are far wider; as Rod Cavalier has said, Labor can’t reform its party whilst the unions have a vice like grip on everything that happens within the Labor party.

It is the elephant in the room for Labor. Unions only represent 14% of the private sector workforce but they have their hands on the throat of the other 84% and the FW Act gives them the means to exercise control. Australia’s economic performance is now subject to a veto by the union movement.

Of course some people say that productivity performance is not conditioned by the form of labour market regulation. Admittedly measures of productivity are complex and subject to all sorts of other factors. However, as a Minister, I saw lots of cases where better and more efficient arrangements for employees and employers to manage their relationships at work without third party interference provided the opportunity for better work practices and genuine productivity improvements. In the meat industry, in building and construction and many others the reforms introduced in 1996 definitely improved productivity. Perhaps the most obvious to the public was the waterfront. The huge increases in productivity would never had happened but for the introduction of AWAs and secondary boycott provisions introduced by the Howard Government.

In today’s newspaper there are various examples of how FWA is undermining productivity at the same time as the AFR headline states “Productivity not Labor’s fault: ACTU.”

It makes no sense to suggest that either the ACTU or FWA or Labor can wipe its hands and say that decisions it makes do not affect productivity. Look at the retail sector and the Productivity Commission’s comments on retail’s modern award. That has had an impact on productivity. Decisions on unfair dismissal and agreement making can impact on behaviour and thus productivity. Labor certainly claimed a link between its legislation and productivity when it promised that the FWA would improve productivity. As productivity has been flat for some years Labor supporters and others are now making the opposite claim.

I do not say that the FWA is the root of all evil. The current Government is not the first to turn back the clock on labour reform. Nor are employers free of responsibility for what happens in their business. But there is no doubt that the union movement’s control over the ALP distorts the policy agenda. It is a pity for Australia that the Australian Labor Party does not look more carefully at the policy approach of UK Labor under Tony Blair. The problem for Labor is obvious in both Federal and State spheres.

One of the first acts of the new Gallop administration in WA was to immediately close its building Task Force and amend the Industrial Relations Act to neuter individual agreements. It was this abolition of the Task Force that triggered Tony Abbott to create the Cole Royal Commission in 2002.

The Cole Royal Commission reported that the WA abolition had resulted in the “reappearance of all the restrictive practices which existed in the 1980s and early 1990s”. But the impact was immediate. Unions did not wait for the formal dismantling of the Task Force. Targeted companies found the unions at their gates the Monday following the election. The Royal Commission cites one case where Joe McDonald from the CFMEU turned up on the Monday and declared it was “GST time. Get square time. We have waited for this for years.”

To me, this is just an example of the culture. As soon as the ALP win an election the behaviour of militant unions changes. This can be seen in the building industry. The announcement to abolish the ABCC is a green light to encourage industrial strife. In 2006 the number of working days lost per thousand employees was 1.6 in the building industry. John Lloyd was still there in 2008 when the figure had moved to 2.8. The latest figure for the quarter ending 30th June 2011 is now 44. A massive increase. Generally the level of disputes is on the rise. Labor in office, gives the green light to poor behaviour and then they are surprised with the consequences. The ABCC is to be abolished; it will be replaced by a Directorate.  The compulsory powers (already cut under Mr Johns) will be legislatively curtailed and the penalties for poor behaviour are to be slashed by two thirds.

Today’s headline dispute is with Qantas. Aspects of this dispute are a direct result of changes made by Julia Gillard on the demand of the unions. It is a dispute that has all the rhetoric of a dispute in the early 1980s under Malcolm Fraser. A union official suggests that Qantas fabricated certain events to put pressure on the union. One union official advised Qantas customers to use other airlines. Paul Howes sounded as if he was supporting the public but actually his union is vying for coverage against the union running the claim. There is nothing like a demarcation dispute; I thought we had seen the end of them but they are back, ugly as ever. Then I hear a Minister attack the unions and then say that all disputes can be settled. Of course this came from a good bloke but all the same a former ACTU President. Martin should know that unreasonable demands from pilots on $500,000 per annum cannot be negotiated if you want Qantas to be a viable business in the future. A business can capitulate but that is not in the national interest.  Minister Martin Fergusson probably thought he was pursuing the public interest but of course his government widened allowable matters from the 1996 legislation to allow unions to strike over their claims that they know how to run Qantas better than the Board and the CEO. These unions have learnt nothing and now are intent on running the company into the ground.

Keating set out a better approach at the AICD in the early 1990s.
“It is a model that places primary emphasis on bargaining at the workplace level within a framework of minimum standards provided by arbitral tribunals. It is a model under which compulsorily arbitrated awards and arbitrated wage increases would be there only as a safety net. This safety net would not be intended to prescribe the actual conditions of work of most employees, but only to catch those unable to make workplace agreements with employers. Over time, the safety net would inevitably become simpler. We would have fewer awards with fewer clauses.”
AWAs are a good idea; they give people choice. I do not know what Abbott will do next. I think it was a mistake to unilaterally wipe out policy that has been part of Coalition thinking for nearly 30 years. He did so on TV on the night that John Lloyd, Prof Judith Sloan were arguing the case at the National Press Club. I am not sure I will ever go back! I think it is a mistake to think that IFAs could provide an alternative to AWAs. If you redefine the operation of an IFA to make it like an AWA (however it is named), the Senate will block it. If it walks like an AWA and quacks like an AWA then it is an AWA.

One of the problems about the IFA is that the legislation gives the unions plenty of opportunities to stymie their operation. They are individual but the union agreements can limit their scope. They are not just a poor cousin of the AWA, IFAs are really the individual agreement you have when you are totally opposed to the concept. They are more like Keating’s EFAs.  EFAs did not work. They were union constrained.
The Keating speech allowed the Coalition to say that its 1996 policy was supported by Keating even though by then he opposed it. In the battle of ideas, Keating’s comments meant that both sides of politics were on the same page. It was now accepted that bargaining at the enterprise level was essential as a means to link remuneration to productivity and that this approach would help manage inflation. It was also a means to cater for the rising demand of workers to have flexible working arrangements that were tailored to their personal needs on issues like work and family.
The issue that was not settled was the role of unions. Keating killed off his own reform when he gave unions the right to intervene in agreements even if they had no members on site. So employers shunned his agreements and by the end of the first 12 months, only 27 employers had used them. By contrast, the 1996 reforms took off from the start and in the first twelve months, 340 employers used the new non union collective agreements and 5000 AWAs were approved.
So, the delivery of the reform was left to the Coalition. By the end of 1996, the Coalition had secured legislation through the Senate to allow for not only simpler awards and union collective agreements, but crucially, non-union collective agreements and individual contracts (Australian Workplace Agreements, AWAs). The framework legislation gave people choice so employers and employees, at the workplace, had a menu of agreements and they could decide which would suit them best. Around 1,400,000 AWAs were filed during the Howard years and the non union collective agreements were widely used. Even where these options were not used their mere availability changed behaviour generally in the labour market. The reforms soon brought huge productivity improvements in key sectors like stevedoring, meat works and many others.
The bottom line is that Australia’s problems with the FWA will grow, business will continue to complain, our productivity will remain stagnant and living standards will be lower than they could otherwise be. And the politicians will do little to address the issues and give themselves a massive pay increase at the end of the year. This will only dismay the public at large but leave too many issues unaddressed.